Compcomm, Inc., is an international communications andinformation technology company that has seen the value ofits common stock appreciate substantially in recent years.A stock analyst would like to predict the stock prices ofCompcomm for an extended period with simulation. Basedon historical data, the analyst has developed the followingprobability distribution for the movement of Compcommstock prices per day: Stock Price MovementProbability45IncreaseSame.30Decrease.25The analyst has also developed the following probabilitydistributions for the amount of the increases or decreases inthe stock price per day:ProbabilityStock Price ChangeIncrease40Decrease.12.17.15.12.18.10.21.08.14.07.10.04.051.02.05The price of the stock is currently 62.Develop a Monte Carlo simulation model to track thestock price of Compcomm stock and simulate for 30 days.Indicate the new stock price at the end of the 30 days. Howwould this model be expanded to conduct a complete sim-ulation of one year's stock price movement?

The simulation model is following

Answered: Stock Price Movement Probability 45…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

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Question

Compcomm, Inc., is an international communications and
information technology company that has seen the value of
its common stock appreciate substantially in recent years.
A stock analyst would like to predict the stock prices of
Compcomm for an extended period with simulation. Based
on historical data, the analyst has developed the following
probability distribution for the movement of Compcomm
stock prices per day:

Stock Price Movement
Probability
45
Increase
Same
.30
Decrease
.25
The analyst has also developed the following probability
distributions for the amount of the increases or decreases in
the stock price per day:
Probability
Stock Price Change
Increase
40
Decrease
.12
.17
.15
.12
.18
.10
.21
.08
.14
.07
.10
.04
.05
1
.02
.05
The price of the stock is currently 62.
Develop a Monte Carlo simulation model to track the
stock price of Compcomm stock and simulate for 30 days.
Indicate the new stock price at the end of the 30 days. How
would this model be expanded to conduct a complete sim-
ulation of one year's stock price movement?

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